Prices, Productivity, and Waste in LDC Agriculture
Recent studies have revealed that LDCs have been taxing their agricultural sectors at rates of 40 to 50 percent. While it is widely acknowledged that this taxation might have significant allocative effects, this paper examines a cross-country aggregated agricultural production function. The results estimate that the elasticity of productivity with respect to output prices is about 0.1, indicating that the taxation levels have had very significant productivity impacts. Allais-Debreu measures of deadweight loss indicate that from 7 to 16 percent of output or of the agricultural resource base has been wasted due to the associated misallocation of agricultural inputs across these countries.
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